Rule 26 penalties for clandestine removal upheld in principle, but reduced because the original quantum was excessive.

Penalties under Rule 26 of the Central Excise Rules, 2002 were considered sustainable where the record showed active participation in clandestine removal and evasion. The Managing Director was treated as the direct beneficiary of the illicit clearances, while employees were found to have maintained parallel records, issued invoices, directed removals and otherwise assisted the evasion. The Tribunal also held that the corporate appellants' conduct brought them within the penal provision, and distinguished a Larger Bench ruling on a different rule. However, the original penalties were found excessive in light of the respective roles played, so the quantum was reduced for all appellants.

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Issues: Whether penalties imposed under Rule 26 of the Central Excise Rules, 2002 on the Managing Director, employees and related companies for clandestine removal were sustainable and whether the quantum required reduction.

Analysis: The penalty under Rule 26 was found maintainable because the record showed active participation in the evasion: one appellant, as Managing Director, was treated as the direct beneficiary of the clandestine clearances, and the employees were found to have maintained parallel records, issued invoices, directed removals and otherwise assisted the illicit clearances. For the corporate appellants, the Tribunal held that the same conduct brought them within the penal provision, though the Larger Bench decision on a different rule was distinguished. At the same time, the Tribunal took a lenient view on the amount of penalty, holding that the original figures were excessive in relation to the respective roles played by the appellants.

Conclusion: Penalties under Rule 26 were upheld in principle, but the quantum was reduced for all the appellants.

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